SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1996 Commission File No. 0-12957
------------------ -------
ENZON, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2372868
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
20 Kingsbridge Road, Piscataway, New Jersey 08854
(Address of principal executive offices) (Zip Code)
(908) 980-4500
(Registrant's telephone number, including area code:)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares of common stock, $.01 par value, outstanding as of November
7, 1996 was 27,707,643 shares.
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<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ENZON, INC AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30, 1996 and June 30, 1996
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1996 1996
-------------------------------------------------------------
(unaudited) *
<S> <C> <C>
Current assets:
Cash and cash equivalents $12,247,734 $12,666,050
Accounts receivable 2,181,741 2,123,691
Inventories 872,744 985,378
Other current assets 311,117 434,318
-------------- -------------
Total current assets 15,613,336 16,209,437
------------- ------------
Property and equipment 15,700,608 15,640,823
Less accumulated depreciation and amortization 12,036,201 11,617,690
------------- ------------
3,664,407 4,023,133
-------------- -------------
Other assets:
Investments 78,293 78,293
Other assets, net 176,083 55,945
Patents, net 1,558,428 1,597,048
------------ ------------
1,812,804 1,731,286
------------ ------------
Total assets $21,090,547 $21,963,856
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,549,716 $2,078,924
Accrued expenses 4,028,620 4,387,052
------------- -------------
Total current liabilities 6,578,336 6,465,976
------------- -------------
Accrued rent 957,120 980,908
Royalty advance - RPR 1,307,291 1,600,786
Other liabilities 1,098 1,728
---------------- --------------
2,265,509 2,583,422
-------------- ------------
Commitments and contingencies
Preferred stock-$.01 par value, authorized 3,000,000 shares:
issued and outstanding 169,000 shares at September 30, 1996 and June 30, 1996
(liquidation preference aggregating $8,725,000 at September 30, 1996 and
June 30, 1996) 1,690 1,690
Common stock-$.01 par value, authorized 40,000,000
shares;
issued and outstanding 27,707,643 shares at September
30, 1996 and 27,706,396 shares at June 30, 1996 277,076 277,064
Additional paid-in capital 121,322,870 121,272,024
Accumulated deficit (109,354,934) (108,636,320)
------------- -------------
Total stockholders' equity 12,246,702 12,914,458
-------------- --------------
Total liabilities and stockholders' equity $21,090,547 $21,963,856
============== =============
</TABLE>
*Condensed from audited financial statements.
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
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<PAGE>
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30, September 30,
1996 1995
------------------------------------------------------
<S> <C> <C>
Revenues
Sales $2,720,591 $2,809,048
Contract revenue 1,094,299 116,500
------------ ------------
Total revenues 3,814,890 2,925,548
------------ -----------
Costs and expenses
Cost of sales 985,989 964,701
Research and development expenses 2,429,771 2,690,648
Selling, general and administrative expenses 1,276,067 1,271,970
----------- -----------
Total costs and expenses 4,691,827 4,927,319
----------- -----------
Operating loss (876,937) (2,001,771)
------------- ------------
Other income (expense)
Interest and dividend income 157,141 102,345
Interest expense (6,753) (6,689)
Other 7,935 2,943
------------- -------------
158,323 98,599
------------ -------------
Net loss ($718,614) ($1,903,172)
============ ============
Net loss per common share ($0.03) ($0.07)
============ ============
Weighed average number of common
shares outstanding during the period 27,705,913 26,328,874
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
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<PAGE>
ENZON, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30, September 30,
1996 1995
--------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($718,614) ($1,903,172)
Adjustment for depreciation and amortization 457,131 536,975
Non-cash expense for issuance of stock options 48,248 -
Decrease in accrued rent (23,788) (2,579)
Decrease in royalty advance - RPR (293,495) (103,927)
Changes in assets and liabilities 169,938 38,447
---------- ------------
Net cash used in operating activities (360,580) (1,434,256)
----------- ------------
Cash flows from investing activities:
Capital expenditures (59,785) (39,102)
------------ -----------
Net cash used in investing activities (59,785) (39,102)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 2,610 -
Principal payments of obligations under capital leases (561) (503)
------------- -------------
Net cash provided by (used in) financing activities 2,049 (503)
------------ -------------
Net decrease in cash and cash equivalents (418,316) (1,473,861)
Cash and cash equivalents at beginning of period 12,666,050 8,102,989
----------- ----------
Cash and cash equivalents at end of period $12,247,734 $6,629,128
=========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
condensed financial statements.
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<PAGE>
ENZON, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements
(Unaudited)
(1) Organization and Basis of Presentation
The unaudited consolidated condensed financial statements have been
prepared from the books and records of Enzon, Inc. and subsidiaries in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal and recurring adjustments) considered necessary for a fair
presentation have been included. Interim results are not necessarily indicative
of the results that may be expected for the year.
(2) Net Loss Per Common Share
Net loss per common share is based on net loss for the relevant period,
adjusted for cumulative undeclared preferred stock dividends of $55,000 for both
of the three month periods ended September 30, 1996 and 1995, divided by the
weighted average number of shares issued and outstanding during the period.
Stock options, warrants and common stock issuable upon conversion of the
preferred stock are not reflected as their effect would be antidilutive for both
primary and fully diluted earnings per share computations.
(3) Inventories
The composition of inventories at September 30, 1996 and June 30, 1996
is as follows:
September 30, June 30,
1996 1996
Raw materials $321,000 $206,000
Work in process 99,000 383,000
Finished goods 453,000 396,000
--------- ---------
$873,000 $985,000
======== ========
(4) Cash Flow Information
The Company considers all highly liquid securities with original
maturities of three months or less to be cash equivalents. Cash payments for
interest were approximately $7,000 for both of the three month periods ended
September 30, 1996 and 1995. There were no income tax payments made for the
three months ended September 30, 1996 and 1995. As part of the commission due to
the real estate broker in connection with termination of the lease at 40
Kingsbridge Road, the Company issued 150,000 five-year warrants to purchase the
Company's Common Stock at $2.50 per share during the three months ended
September 30, 1995. This transaction is a non-cash financing activity.
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<PAGE>
ENZON, INC. AND SUBSIDIARIES
Notes To Consolidated Condensed Financial Statements, Continued
(Unaudited)
(5) Non-Qualified Stock Option Plan
During the three months ended September 30, 1996, the Company issued
593,000 stock options at an average exercise price of $2.81 under the Company's
Non-Qualified Stock Option Plan, as amended (the "Plan"), of which 150,000 were
granted to officers. None of the options granted during the period are
exercisable as of September 30, 1996.
All options were granted with exercise prices that equalled the fair
market value of the underlying common stock on the date of grant. The options
were granted for the purpose of encouraging the employees to remain with the
Company and to provide a long-term performance incentive. The options generally
require the employees to remain with the Company for two years, in order for the
options to become fully exercisable.
(6) Subsequent Events
During October 1996, the Company entered into a marketing agreement
with Medac GmbH ("MEDAC") to sell ONCASPAR in Europe and Russia. MEDAC will
purchase ONCASPAR from Enzon at a set price which will increase over the term of
the agreement. The agreement also contains minimum annual purchase requirements.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Information contained herein contains "forward-looking statements" which can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The matters set forth in Exhibit
99.0 to the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1996, which is incorporated herein by reference, constitute cautionary
statements identifying important factors with respect to such forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to vary materially from the future results indicated in such
forward-looking statements. Other factors could also cause actual results to
vary materially from the future results indicated in such forward-looking
statements.
Results of Operations
Three months ended September 30, 1996 vs. Three months ended September 30, 1995
Revenues. Revenues for the three months ended September 30, 1996 increased by
30% to $3,815,000 as compared to $2,926,000 for the same period in 1995. The
components of revenues are sales, which consist of sales of the Company's
products and royalties on the sales of such products by others, and contract
revenues. Sales decreased by 3% to $2,721,000 for the three months ended
September 30, 1996, as compared to $2,809,000 for the same period in the prior
year due to a decrease in shipments of ONCASPAR(R) to the Company's marketing
partner, Rhone-Poulenc Rorer Pharmaceuticals, Inc. ("RPR") which was offset in
part by increased royalties on RPR sales of ONCASPAR. Sales of ADAGEN(R) for the
three months ended September 30, 1996 and 1995 were $2,126,000 and $2,175,000,
respectively. The Company expects sales of ADAGEN to continue to be limited due
to the small patient population worldwide. The Company anticipates moderate
growth of ONCASPAR sales and increased royalties on sales of ONCASPAR. During
October 1996, the Company signed a marketing agreement with Medac GmbH ("MEDAC")
to sell ONCASPAR in Europe and Russia. The Company's marketing partners, RPR and
MEDAC, will conduct clinical trials to expand the use of ONCASPAR beyond its
current approved indications in the United States and Germany, which could also
result in additional revenues from this product. Such clinical trials are in
progress in the United States. Additionally, MEDAC is responsible for obtaining
registration for ONCASPAR in the remaining European countries. There can be no
assurance that any particular sales levels of ONCASPAR or ADAGEN will be
achieved or maintained. Contract revenue for the three months ended September
30, 1996 increased by $977,000 to $1,094,000, as compared to $117,000 for the
same period in 1995. The increase was due to a one-time $1,000,000 payment
received from Schering Corporation related to the transfer of know-how for the
manufacturing of PEG- Intron A under the Company's June 1995 amended Schering
Agreement. During the three months ended September 30, 1996 and 1995, the
Company had export sales of $582,000 and $640,000, respectively. Sales in Europe
were $512,000 and $554,000 for the quarters ended September 30, 1996 and
September 30, 1995, respectively.
Cost of Sales. Cost of sales, as a percentage of sales, increased to 36% for the
three months ended September 30, 1996 as compared to 34% for the same period in
1995. The increase was due primarily to increased ONCASPAR production costs.
Research and Development. Research and development expenses for the three months
ended September 30, 1996 decreased by 10% to $2,430,000 from $2,691,000 for the
same period in 1995. This decrease was primarily due to reductions in personnel,
principally in the clinical and scientific administration areas, and related
costs, such as payroll taxes, totaling approximately $179,000 and other cost
containment measures taken by the Company.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended September 30, 1996, remained
relatively flat at $1,276,000, as compared to $1,272,000 for the same period in
1995.
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<PAGE>
Other Income/Expense. Other income/expense increased by $59,000 to $158,000 for
the three months ended September 30, 1996 as compared to $99,000 for the same
period last year. The increase in other income/expense for the three months
ended September 30, 1996 was attributable to an increase in interest income due
to an increase in interest bearing investments.
Liquidity and Capital Resources
Enzon had $12,248,000 in cash and cash equivalents as of September 30,
1996. The Company invests its excess cash in a portfolio of high-grade
marketable securities and United States government-backed securities.
The Company's cash reserves as of September 30, 1996 decreased by
$418,000 from June 30, 1996. The decrease in cash reserves was principally
caused by the funding of operations.
The Company's exclusive U.S. marketing rights license with RPR for
ONCASPAR, as amended, (the "Amended RPR License Agreement") provides for a
payment of $3,500,000 in advance royalties, which was received in January 1995.
Royalties due under the Amended RPR License Agreement will be offset against an
original credit of $5,970,000, which represents the royalty advance plus
reimbursement of certain amounts due RPR under the original agreement and
interest expense, before cash payments will be made under the agreement. The
royalty advance is shown as a long term liability with the corresponding current
portion included in accrued expenses on the consolidated condensed balance
sheets and will be reduced as royalties are recognized under the agreement.
Through September 30, 1996, an aggregate of $1,446,000 in royalties payable by
RPR has been offset against the original credit.
As of September 30, 1996, 940,808 shares of Series A Cumulative
Convertible Preferred Stock ("Series A Preferred Stock") had been converted into
3,093,411 shares of Common Stock. Accrued dividends on the converted Series A
Preferred Stock in the aggregate of $1,792,000 were settled by the issuance of
232,383 shares of Common Stock. The Company does not presently intend to pay
cash dividends on the Series A Preferred Stock. As of September 30, 1996, there
were $1,422,000 of accrued and unpaid dividends on the Series A Preferred Stock.
Dividends accrue on the outstanding Series A Preferred Stock at the rate of
$218,000 per year. As of September 30, 1996, there had been no conversion of the
Company's Series B Convertible Preferred Stock or Series C Convertible Preferred
Stock. Neither the Series B Convertible Preferred Stock nor the Series C
Convertible Preferred Stock carry stated dividends.
To date, the Company's sources of cash have been the proceeds from the
sale of its stock through public and private placements, sales of ADAGEN, sales
of ONCASPAR, sales of its products for research purposes, contract research and
development fees, technology transfer and license fees and royalty advances. The
Company's current sources of liquidity are its cash, cash equivalents and
interest earned on such cash reserves, sales of ADAGEN, sales of ONCASPAR, sales
of its products for research purposes and license fees. Management believes that
its current sources of liquidity will be sufficient to meet its anticipated cash
requirements, based on current spending levels, for approximately the next two
years.
Upon exhaustion of the Company's current cash reserves, the Company's
continued operations will depend on its ability to realize significant revenues
from the commercial sale of its products, raise additional funds through equity
or debt financing, or obtain significant licensing, technology transfer or
contract research and development fees. There can be no assurance that these
sales, financings or revenue generating activities will be successful.
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<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
Exhibit Page Number
Number Description or
Incorporation
By Reference
<S> <C> <C>
3(I) Certificate of Incorporation, as amended ^
3(ii) By-laws, as amended *(4.2)
10.0 Employment Agreement dated March 25, 1994 with Peter G. Tombros #(10.17)
10.1 Form of Change of Control Agreements dated as of January 20, 1995 entered
into with the Company's Executive Officers ~(10.2)
10.2 Lease - 300-C Corporate Court, South
Plainfield, New Jersey ***(10.3)
10.3 Modification of Lease - 300-C Corporate Court, South Plainfield
New Jersey ++(10.3)
10.4 Lease Termination Agreement dated March 31, 1995 for
20 Kingsbridge Road and 40 Kingsbridge Road, Piscataway, New Jersey ~(10.6)
10.5 Option Agreement dated April 1, 1995 regarding 20 Kingsbridge Road,
Piscataway, New Jersey ~(10.7)
10.6 Form of Lease - 40 Cragwood Road, South
Plainfield, New Jersey ****(10.9)
10.7 Lease 300A-B Corporate Court, South Plainfield, New Jersey +++(10.10)
10.8 Stock Purchase Agreement dated March 5, 1987
between the Company and Eastman Kodak Company ****(10.7)
10.9 Amendment dated June 19, 1989 to Stock Purchase
Agreement between the Company and
Eastman Kodak Company **(10.10)
10.10 Form of Stock Purchase Agreement between the Company
and the purchasers of the Series A Cumulative
Convertible Preferred Stock +(10.11)
10.11 Amendment to License Agreement and Revised License Agreement
between the Company and RCT dated
April 25, 1985 ++++(10.5)
10.12 Amendment dated as of May 3, 1989 to Revised License Agreement
dated April 25, 1985 between the Company and Research
Corporation **(10.14)
10.13 License Agreement dated September 7, 1989 between the Company
and Research Corporation Technologies, Inc. **(10.15)
10.14 Master Lease Agreement and Purchase Leaseback Agreement dated
October 28, 1994 between the Company and Comdisco, Inc. ##(10.16)
10.15 Amendment dated as of May 15, 1995 to Employment Agreement with
Peter G. Tombros ~~(10.17)
10.16 Stock Purchase Agreement dated as of June 30, 1995 ~~~
10.17 Securities Purchase Agreement dated as of January 31, 1996 ~~~
10.18 Registration Rights Agreements dated as of January 31, 1996 ~~~
10.19 Warrants dated as of February 7, 1996 and issued pursuant to the Securities
Purchase Agreement dated as of January 31, 1996 ~~~
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.20 Securities Purchase Agreement dated as of March 15, 1996 ^
10.21 Registration Rights Agreement dated as of March 15, 1996 ^
10.22 Warrant dated as of March 15, 1996 and issued pursuant to the Securities
Purchase Agreement dated as of March 15, 1996 ^
27.0 Financial Data Schedule @
99.0 Factors to Consider in Connection with Forward-Looking Statements ^^
</TABLE>
@ Filed herewith.
* Previously filed as an exhibit to the Company's Registration Statement on
Form S-2 (File No. 33-34874) and incorporated herein by reference
thereto.
** Previously filed as exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1989 and
incorporated herein by reference thereto.
*** Previously filed as an exhibit to the Company's Registration Statement on
Form S-18 (File No. 2-88240-NY) and incorporated herein by reference
thereto.
**** Previously filed as exhibits to the Company's Registration Statement on
Form S-1 (File No. 2-96279) filed with the Commission and incorporated
herein by reference thereto.
+ Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 33-39391) filed with the Commission and incorporated
herein by reference thereto.
++ Previously filed as an exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1992 and
incorporated herein by reference thereto.
+++ Previously filed as an exhibit to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1993 and
incorporated herein by reference thereto.
++++ Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1985 and incorporated herein by
reference thereto.
# Previously filed as an exhibit to the Company's Current Report on Form
8-K dated April 5, 1994
and incorporated herein by reference thereto.
## Previously filed as an exhibit to the Company's quarterly
report on Form 10-Q for the quarter ended December 31, 1994
and incorporated herein by reference thereto.
~ Previously filed as an exhibit to the Company's quarterly
report on Form 10-Q for the quarter ended March 31, 1995 and
incorporated herein by reference thereto.
~~ Previously filed as an exhibit to the Company's annual report
on Form 10-K for the fiscal year ended June 30, 1995 and
incorporated herein by reference thereto.
~~~ Previously filed as an exhibit to the Company's quarterly
report on Form 10-Q for the quarter ended December 31, 1995
and incorporated herein by reference thereto.
^ Previously filed as an exhibit to the Company's quarterly
report on Form 10-Q for the quarter ended March 31, 1996 and
incorporated herein by reference thereto.
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<PAGE>
^^ Previously filed as an exhibit to the Company's annual report
on Form 10-K for the fiscal year ended June 30, 1996 and
incorporated herein by reference thereto.
(b) Reports on Form 8-K
On July 22, 1996, the Company filed with the Commission a Current
Report on Form 8-K dated June 24, 1996 relating to the Company's
commencement of a multi-dose, multi-center clinical trial of its
hemoglobin-based oxygen carrier, PEG-hemoglobin, in cancer patients receiving
radiation therapy (Item 5).
On July 22, 1996, the Company filed with the Commission a Current
Report on Form 8-K dated July 17, 1996 relating to the receipt of three
additional Single-Chain Antigen Binding ("SCA") patents (Item 5).
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENZON, INC.
(Registrant)
Date: November 14, 1996 By: /s/ Peter G. Tombros
Peter G. Tombros
President and Chief Executive
Officer
By: /s/ Kenneth J. Zuerblis
Kenneth J. Zuerblis
Vice President, Finance
(Principal Financial
and Accounting Officer)
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>This schedule contains summary financial information extracted from the
Enzon, Inc. and Subsidiaries Consolidated Condensed Balance Sheet as of
September 30, 1996 and the Consolidated Condensed Statement of Operations for
the three months ended September 30, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 12,247,734
<SECURITIES> 0
<RECEIVABLES> 2,181,741
<ALLOWANCES> 0
<INVENTORY> 872,744
<CURRENT-ASSETS> 15,613,337
<PP&E> 15,700,608
<DEPRECIATION> 12,036,201
<TOTAL-ASSETS> 21,090,548
<CURRENT-LIABILITIES> 6,578,336
<BONDS> 0
0
1,690
<COMMON> 277,077
<OTHER-SE> 11,967,936
<TOTAL-LIABILITY-AND-EQUITY> 21,090,548
<SALES> 2,720,591
<TOTAL-REVENUES> 3,814,890
<CGS> 985,989
<TOTAL-COSTS> 4,691,827
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,753
<INCOME-PRETAX> (718,614)
<INCOME-TAX> 0
<INCOME-CONTINUING> (718,614)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (718,614)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>
